Discussion of international investment governance has changed in character in recent years. While some specialists examined the potential negative sustainable development implications of international investment agreements (IIAs), in official forums the focus of previous decades was often on how to best protect and encourage foreign direct investment (). Now, especially because of ongoing negotiations of mega-regional trade and investment agreements, the issue has moved into mainstream political debate.
Heads of state of the United Nations came together in late September 2015 to formally adopt the 2030 Agenda for Sustainable Development, including a set of 17 Sustainable Development Goals (SDGs). These goals, which comprehensively address the economic, environmental, and social dimensions of sustainable development, set out a new vision for the world.
To achieve that vision, international financial systems will have to play their part. Intergovernmental negotiations concluded in July 2015 at the Third International Conference on Financing for Development (FfD Conference) in Addis Ababa, Ethiopia, indicate that governments are looking for new directions, including in the international investment regime.
Investment policy and sustainable development
Developing countries need investment to achieve higher standards of living and to adopt sustainable practices. However, policy coherence is a fundamental challenge.
Global savings and investment are large; capital markets intermediate trillions of dollars annually. Still, areas of public priority such as universal basic services and infrastructure witness underinvestment. While large economies often can mobilize domestic, smaller and poorer economies usually cannot, relying on cross-border finance. Despite investment climate reforms, most countries still receive meagre foreign investment. Sustainable development will also require significant regulatory and policy changes to shape socially responsive and environmentally sensitive economies.
The current international investment regime has come under scrutiny for its failure to produce outcomes consistently coherent with sustainable development. Channelling investment into the priorities highlighted by the SDGs will be difficult. Some policy-makers feel that IIAs and investment promotion have a role to play, particularly to help least developed countries realize greater investment. IIAs may impact locational choice of investment, though the evidence is weak on them having a large effect. Yet, they also may constrain countries’ ability to emphasize priority sectors by proactively screening investments. And IIAs have been faulted for regulatory chill and reducing needed policy space in a number of areas. Particularly worrisome has been investor–state dispute settlement, which has both regulatory and fiscal effects.
Sustainable and resilient infrastructure investment is not a concern just at the United Nations. The G20 under the Turkish presidency in 2015 has prioritized investment, including attracting institutional investors (such as pension funds) into cross-border financing of infrastructure. Sensitive, expensive, and risky infrastructure projects may be subject to regulatory changes, demands for contract renegotiation, or political changes of heart about private sector participation. The development of complex financial structures to attract international investment into such projects could strain the international investment regime even more, as regulatory and political changes could be subject to challenge by overseas investors under clauses.
Reconciling the important goals of investment promotion/protection and sustainable development will require much work. Still, with political will, there are possibilities for achieving greater coherence between the desires of investors and the needs of the public.
The First FfD Conference, held in Monterey, Mexico, in 2002, was the first UN-sponsored summit-level meeting to address key financial and related issues pertaining to global development, and was organized with the participation of the International Monetary Fund (IMF), the UN Conference on Trade and Development (Monterrey Consensus outcome document’s reference to cross-border investment and IIAs is typical of its era: “Private international capital flows, particularly foreign direct investment, […] are vital complements to national and international development efforts.” It called for special efforts in “such priority areas as economic policy and regulatory frameworks for promoting and protecting investments” and noted that “mechanisms, such as public/private partnerships and investment agreements, can be important.”), the UN Development Programme, the World Bank, and the World Trade Organization. The
The Second FfD Conference in Doha, Qatar, in 2008 again mentioned the importance of investment promotion: “Bilateral investment treaties may promote private flows by increasing legal stability and predictability to investors.” While the Doha Declaration encouraged countries to make sure such agreements “take into account regional and multilateral cooperation,” there was no recognition of potential conflicts with development objectives.
However, by 2015, governments realized that IIAs and other policy objectives need to be consistent. During the preparatory process for the Third FfD Conference, the co-facilitators of the negotiations (the Ambassadors of Guyana and Norway) released a background paper identifying challenges:
[T]here has been a proliferation of bilateral, regional and interregional trade and investment agreements. Concerns on social impacts (including gender) and financial stability and environmental sustainability have not been taken fully into account in some of those agreements, raising questions about their compatibility with sustainable development objectives. While trade and investment practices are increasingly integrated, the policy environment remains highly fragmented.
Within a few months, the co-facilitators released their first draft of the Addis Ababa Action Agenda (the Agenda), the outcome document from the conference, for negotiation by member states. It made some major proposals: 
We will carry out negotiation and implementation of trade and investment agreements in a transparent manner to ensure that trade and investment treaties do not constrain domestic policies to reduce inequality, protect the environment or ensure adequate tax revenues. We will strengthen safeguards in investment treaties, especially by proper review of investor-state-dispute-settlement () clauses, to ensure the right to regulate is retained in areas critical for sustainable development, including health, the environment, employment, infrastructure (including electricity and transport), public safety, macro prudential regulations and financial stability.
The goal of protecting and encouraging investment should not affect our ability to pursue public policy objectives. We will endeavour to craft trade and investment agreements with appropriate safeguards so as not to constrain domestic policies and regulation in the public interest. We will implement such agreements in a transparent manner.
This specific paragraph on IIAs comes in the context of the introductory section which states: “We will respect each country’s policy space and leadership to implement policies for poverty eradication and sustainable development, while remaining consistent with relevant international rules and commitments.”
The language on IIAs represents a ground-breaking intergovernmental commitment: all of the countries of the world, in a consensus fashion at the highest level, recognized the need for IIAs not to constrain other public policies. The presence at the conference of 24 heads of state or their deputies and more than 100 ministers plus high-level officials from 174 countries lends extra weight to the outcome.
Implementing the commitment
The crafting of “appropriate safeguards” is a vital component of how the Agenda should be implemented. All new IIAs should now include safeguards for regulation in the public interest. In line with this thinking, UNCTAD has a work program on IIA reform with a mandate specifically endorsed by the Agenda; its updated Investment Policy Framework for Sustainable Development provides guidance for policy-makers on the options available and the 2015 World Investment Report provides an action-oriented roadmap for reform, with options for national, regional, and multilateral policy-making.
Additionally, reforms of existing IIAs are warranted. By June 2015, at least 50 countries or regions had revised or were already reviewing their model agreements and strategies. Review of past treaties, while laborious, is not impossible given political will. Reviews of IIAs could focus on vital reforms, such as right-to-regulate clauses, reforming investment dispute settlement, and strengthening investment promotion and facilitation functions.
The intergovernmental nature of the Addis Ababa commitment bodes well for further reform. Previously, investment policies, business regulation, and treaty negotiation might have been handled in silos. Yet clearly cross-ministerial coordination is needed, as is global coherence among social, environmental, and economic aims. Investment is clearly a priority for finance ministries, and is being brought to heads of state and government through the G20 and FfD. IIAs should no longer be a domain for trade ministers only.
Follow-up is a core part of the Agenda, and the United Nations will now hold a weeklong Forum on Financing for Development every year to discuss its implementation. The next meeting will be held in New York in April 2016. This is an important opportunity for further intergovernmental discussion on IIA reform.
Peter Chowla is an Economic Affairs Officer in the Financing for Development Office of the United Nations. The author would like to thank Elisabeth Tuerk and Shari Spiegel for their comments and suggestions. The views expressed in this article are those of the author and do not necessarily reflect the views of the United Nations.
 United Nations. (2015, August 2). 2030 Agenda for sustainable development. Retrieved from http://www.un.org/pga/wp-content/uploads/sites/3/2015/08/120815_outcome-document-of-Summit-for-adoption-of-the-post-2015-development-agenda.pdf
 United Nations General Assembly, Report of the Intergovernmental Committee of Experts on Sustainable Development Financing. U.N. Doc. A/69/315 (August 15, 2015). Retrieved from http://www.un.org/ga/search/viewm_doc.asp?symbol=A/69/315
 See, for example, Urata, S. (2015, May). Impacts of FTAs and BITs on the locational choice of foreign direct investment: The case of Japanese firms. Research Institute of Economy, Trade and Industry (RIETI) Discussion Paper Series 15-E-066. Retrieved from http://www.rieti.go.jp/jp/publications/dp/15e066.pdf
 Bellak, C. (2015, August 13). Economic impact of investment agreements. Department of Economics Working Paper Series, 200. Vienna: WU Vienna University of Economics and Business. Retrieved from http://epub.wu.ac.at/id/eprint/4625
 The note summarizing a May 2015 high-level roundtable on institutional investors organized by the G20 and the Organisation for Economic Co-operation and Development ( ) describes the worries of existing institutional investors about investment risks and investment protection when investing in infrastructure in emerging markets and developing countries. See OECD. (2015, September). Summary of the G20/OECD/Singapore Ministry of Finance High-Level Roundtable on Institutional Investors and Long-Term Investment. Retrieved from http://www.oecd.org/g20/meetings/antalya/G20-OECD-LTI-High-level-Roundtable-Singapore-May-2015-Discussion-Summary-G20-version.pdf
 United Nations. (2003). Monterrey Consensus of the International Conference on Financing for Development, para. 20. Retrieved from https://www.un.org/en/development/desa/population/migration/generalassembly/docs/globalcompact/A_CONF.198_11.pdf
 Id., para. 21.
 United Nations. (2008). Doha Declaration on Financing for Development: Outcome document of the Follow-up International Conference on Financing for Development to Review the Implementation of the Monterrey Consensus, para. 25. Retrieved from https://www.un.org/en/ga/search/view_doc.asp?symbol=A/RES/63/239
 United Nations. (2015, January 21). Preparatory process for the 3rd International Conference on Financing for Development: Elements, p. 7. Retrieved from http://www.un.org/esa/ffd/wp-content/uploads/2015/01/FfD_Elements-paper_drafting-session.pdf
 United Nations. (2015, March 16). Zero draft of the outcome document of the Third Financing for Development Conference: Addis Ababa Accord, para. 81. Retrieved from http://www.un.org/esa/ffd/wp-content/uploads/2015/03/1ds-zero-draft-outcome.pdf
 United Nations. (2015). Addis Ababa Action Agenda of the Third International Conference on Financing for Development (Addis Ababa Action Agenda), para. 91. Retrieved from http://www.un.org/esa/ffd/wp-content/uploads/2015/08/AAAA_Outcome.pdf
 Id., para. 9.
 UNCTAD. (2015). Investment policy framework for sustainable development. Retrieved from http://investmentpolicyhub.unctad.org/Upload/Documents/INVESTMENT POLICY FRAMEWORK 2015 WEB_VERSION.pdf
 United Nations Conference on Trade and Development (UNCTAD). (2015, June). 2015 World investment report. Retrieved from http://unctad.org/en/PublicationsLibrary/wir2015_en.pdf
 Id., p. 108.